As the new year begins, there’s no better time to get a clear picture of your finances by creating a high-level annual budget. This simple but powerful practice can set you up for success and help you achieve your financial goals in 2025. If you’ve never done this before, here are some tips to get you started:
1. Review the Past Year
Start by looking back at 2024. Add up your spending across key categories and use these numbers as a baseline for 2025. Are there areas where you want to cut back or increase spending based on new goals or changes in your family’s situation? This step provides the foundation for a more intentional year ahead.
2. Anticipate Big Events in 2025
Life’s big moments can throw your budget off balance if you don’t plan ahead. Think about upcoming trips, family travel, weddings, large gifts, or major purchases like a car. Don’t forget to account for potential job changes that might affect your income. Consider setting up sinking funds — small, regular savings dedicated to these big expenses — to stay on track without stress.
3. Revisit Long-Term Goals
Use this opportunity to ensure your long-term goals are still on track. Whether it’s saving for a down payment, building your emergency fund, or investing for retirement, make sure your annual budget includes the savings or investments needed to achieve these milestones. Adjust as needed to stay aligned with your dreams.
4. Identify Gaps to Fill
As you map out your budget, you might notice a savings deficit or that you’re not investing as much as you’d like. Start brainstorming ways to bridge the gap. Could you pick up a side gig or cut back on discretionary spending? Even fun strategies like savings challenges can help you close the gap while staying motivated.
5. Keep It Simple
Remember, this is a high-level forecast, not a detailed monthly plan. Use round numbers and leave room for flexibility. Life is unpredictable, and your budget should accommodate that reality.
Why It Matters
While monthly budgets are essential, an annual budget offers a bird’s-eye view of your financial landscape. It helps you catch things you might overlook in a monthly budget and sets the tone for intentional financial decisions.
Take a few minutes to plan your year, and you’ll set yourself up for an even better 2025!
